Saturday, August 6, 2011

Picking Bones with Felix Salmon (and S&P)

I have another bone to pick with Felix Salmon's post today on the downgrade. He (like Tyler Cowen) is of the position that those of us who criticize the messenger and point to S&P's failures are missing the broader point -- that the government's willingness (short-term) and ability (long-term) to pay back its debt should be rightly questioned.

Fair enough. I'll concede that point (sort of).

First of all, let's admit that the downgrade has come, in large part, because of the debt-ceiling nonsense. S&P has even said as much-- recent 'political brinksmanship' (their words) led to this downgrade. So S&P took the Republican threats to default very seriously.

And the GOP threat of default came about because Republicans couldn't wreck Medicare, Medicaid and Social Security through normal legislative processes so they held the country hostage until they got what they wanted -- and so what if the country could borrow billions of dollars for ten-years at less than 3.0%? Republicans were quite happy to wreck that kind of borrowing power in slavish worship of their decades-long ideological mandate to destroy Medicare, Medicaid and Social Security. All of which should give you a terrifying view of just how nuts the crazies running the Tea Party wing of the GOP really are.

Which brings me to my point. The current wingnut ideology running amok in the Republican Party is not news to most. Anybody could see the Tea Partiers were insane long before they won a bunch of elections during the 2010 midterms. Heck, the Bush years were filled with hogwash about destroying government surpluses 'for the people'. A lot of political strategists also knew that Obama should have tied the extension of the Bush Tax Cuts in December to a raise of the debt ceiling or else the GOP would hold the country hostage.

But S&P didn't downgrade the country's debt at any of those times. But why not? Why not downgrade after Bush and a GOP-held congress inflated the federal deficit to mammoth proportions eight years ago? Or why not downgrade right after the midterms? That would have been acceptable... it would have been like an 'independent' referendum on what happens when you let crazy people run your country. Or why not downgrade after Obama failed to realize Republicans would hold the country hostage back in December? Again, all of these would have been acceptable times to make the downgrade.

But now? After the debt limit has been raised (for nearly two years)? Well, I suppose its still acceptable to downgrade now, but I think it shows where the ideology of S&P lies, don't you?

Finally, bear in mind that S&P has no more knowledge about the country's debt than you or I. They know nothing that we don't know. The US government doesn't have opaque securities and derivative trading positions. It's the government. So S&P is passing judgement on what it believes is the US government's current, short-term willingness to pay its debts (they say we're probably not willing to pay). Fair enough. But why not come out and say, "As long as Tea Partiers and Wingnuts have a foothold and serious clout over the United States' political system, we cannot give rate the United States as a AAA country"???